Lessons from the 2011 Belarusian Devaluation

13 February 2013

Belarusians in their modern history saw two major economic crises. The first followed the collapse of the Soviet Union in early 1990s and the second was in 2011 when many thought the Belarusian economy would crumble. The 2011 currency crisis and inflation dramatically changed well-being of Belarusians. Consumer...

Belarusians in their modern history saw two major economic crises. The first followed the collapse of the Soviet Union in early 1990s and the second was in 2011 when many thought the Belarusian economy would crumble. The 2011 currency crisis and inflation dramatically changed well-being of Belarusians. Consumer prices went up 108 percent within a few months.

Although the effects of 1990s devaluation have been properly examined in the literature, the effect of the 2011 deserves more attention. A recent study of Kateryna Bornukova of the Belarusian Research and Outreach Cente 'The Impact of the 2011 Devaluation on Real Income of Belarusians' fills this gap.

The paper shows that a fall in income and spending of all social groups in Belarus rapidly decreased the level of well-being of the Belarusian society. The state tried to cushion the crisis effects but their policies had a very limited effect.

Mechanism of index of prices appeared to protect the poorest social groups in Belarus from the currency crisis effects. However, the group of pensioners seemed to be the most harmed by the politics of the state.

Life was More Expensive

Inflation hit the poorest Belarusians harder than most other groups. In the first quarter of the year 2011, the prices went up by 3.9 percent. Inflation of 2011 was very irregular. Prices for some goods increased even three times, whereas for others has not changed at all.

Such asymmetrical reaction of the market was due to the increased prices for the imported goods, which reflected the fall of the Belarusian currency. On the other hand, Belarus has a system of state regulation of prices and the state tried to control the prices of certain goods and public services of social importance.

The galloping inflation also caused the increase in the food prices. For example, there was a 72 percent increase in prices of diaryproducts and 155 percent increase in the prices of meat and paultry. This increase harshly affected the poor class of the society. However, after the stabilization period, official Minsk increased the prices for the public services, such as transportation.

In order to manage the inflation, the state authorities introduced indexation of the minimal income and minimal pension. In practice, it meant adjustment of the part of income payments by a price index.

Lost in Devaluation

Apparently, only the poorest Belarusians saw their real incomes increase in 2011, whereas the most well-off population groups suffered from consumer inflation and rouble depreciation the most. The real incomes of those in the top-10 by the amount of incomes in the first quarter of 2011 had decreased by 30 percent by the end of the fourth quarter. This should be attributed primarily to the social policy pursued by the Belarusian government.

Minimum wages were growing faster than inflation, enabling a growth in real incomes of households with minimum earnings. At the same time the groups with wages well above the minimum prior to the crisis saw their incomes grow only slightly as a result of wage indexing, meaning that their real incomes were falling.

Furthermore, the poorest Belarusians, as a rule, tend to rely on inflation-proof income sources, such as incomes in kind, privileges, welfare assistance and sale of produce more than any other population group.

The above trends can also explain why the currency crisis hit the most well-educated Belarusians. Real incomes of people with higher education fell 19 percent in the fourth quarter of 2011 from the first quarter, while real incomes of Belarusians with general secondary education or general basic education fell only by 9 percent.

However, the pensioners became the biggest victims of the crisis: their real incomes fell by 16.7 percent on average. Since their incomes were not high originally, such a decrease is remarkable and put the pensioners in a group of high social risk.

More Money to Spend

The authorities attempted to soften the results of the crisis for the poorest, in particular those with low-paid jobs. However, it has not opened the protective umbrella over the pensioners.

Due to the crisis, Belarusians were less prone to spend money. In fact, level of spending in 2011 proves the panic atmosphere of crisis within the society.

Compared to 2010, the second quarter of 2011 proves that spending was higher than income due to the panic on the market. Because of the crisis the structure of the spending has also seriously changed. Belarusians needed to spend more money on the food, although their real incomes had decreased.

In the fourth quarter of 2011, the share of spending on food reached level of 35.4 percent, the highest since 2005. To put it into context, in developed countries the share is usually between 15-20 percent.

One of the main consequences of the reduction in real incomes was the increase of poverty. Number of people with incomes below the official minimum subsistence level more than doubled (from 4.7 to 10.1 percent) in 2011. At the same time, number of those who claimed that are dissatisfied with their incomes has also substantially increased from 14.75 percent in the first quarter of 2011 to 22.08 percent in the fourth quarter.

The currency crisis has not only decreased the real income of Belarusians, but also played a redistributive role. The paper shows that the crisis actually decreased inequality among the Belarusians, because it seriously hit the richest in Belarus. It affected at most people with high income. Therefore, those who earned more prior to the crisis suffered more from it. In the aftermath, the level of inequality decreased.

Belarusian Ultras and the Regime

Recent successes of football club BATE Barysau in the Champion League caught attention not only of supporters from all over the Europe but also of the Belarusian authorities. Achievements of FC BATE often appear in public speeches of Lukashenka.

Answering the question from FC BATE forward Vitaly Radzionau on his last press-conference on January 15, Lukashenka said that FC BATE should be grateful to him because he freed football club form taxes.

Despite the fact that during the last press conference Lukashenka said that he always played football last time he played football in public long was time ago. The favourite sport of Lukashenka is ice hockey. Perhaps for that reason football stadiums are not being built in Belarus and the sports gets little public support.

Victories of the small Belarusian football club in Champion League occurred not because but despite the state policy in the field of sport where football has a low priority. Football in Belarus is an unprofitable business. Belarusian football clubs have a modest financial backing and have permanent financial problems. This is why many good players prefer to pursue a career not in Belarus but in Kazakhstan or in minor leagues in Russia.

Owners of football clubs are enterprise managers from state sector, representatives of regional political elites and oligarchs from the encirclement of Lukashenka. That is very similar to the football management in USSR.

At the same time the subculture of ultras and football hooligans in Belarus is on the rise, which creates a nuisance for the Belarusian authorities. In a country where most areas of public life are under governmental control football fans represent a group which has a protest potential.

Ice Hokey versus Football

After Lukashenka came to power in Belarus ice hockey became the main sport in the country. In the end of 1990s and during 2000s around 30 “ice palaces” were built all around the country. Funds for building the arenas were taken from the state budget. Nowadays around 20 more ice arenas are planning to be built.

The most expensive project of Belarusian ice hockey is the ice hockey club Dynamo-Minsk, which is playing in the Continental Hockey League (KHL). Its annual budget in 2011 amounted $24 millions. The annual budget of FC BATE in 2012 was estimated at only $8 millions.

In the meanwhile, the infrastructure of football in Belarus is poor. New stadiums are not being built (with exception of a new stadium of FC BATE which is currently under construction). There is not even one stadium in Belarus which in accordance with the criteria of UEFA is fit for matches on group stages and playoffs of European cups. The main football arena of Belarus is Dynamo which has only 34 thousands seats closed for renovation in 2012.

The Structure of Belarusian Football

Following Soviet traditions of the USSR, Belarusian state is the main customer and supervisor of professional sport. Lukashenka is the Head of the National Olympic Committee. Functionaries of the government, heads of security structures, and business elites from the circle of Lukashenka also serve as heads of sports federations.

Chief executives of football clubs are also recruited from the regional political elites and managers of state businesses. Sponsorship of football clubs is carrying out by municipalities and regional budgets, by state enterprises and business.

For example the chief executive of FC BATE Anatoliy Kapski is the director of BATE industrial plant which produce starters for tractors. The chairman of the supervisory board of another well-known Belarusian football club FC Dynamo Minsk is one of the wealthiest men in Belarus Yury Chyzh nicknamed by journalists “Lukashenka's wallet”. Currently Yury Chyzh in on the EU travel ban list because of alleged support of the Belarusian regime.

The most notable exception to the rule when the typical owner of Belarusian football club is an administrator from Belarusian ruling elite is Lithuanian businessman Vladimir Romanov – the owner of Heart of Midlothian F.C., FBK Kaunas and BC Žalgiris.

In 2000s he invested into FC MTZ-RIPO Minsk (later on FC Partisan). However, in 2011 after Minsk authorities refused to sign the investment agreement on the construction of the stadium with Romanov Romanov stopped the sponsorship of the football club.

Poor funding, old and dysfunctional stadiums, failure in the European cups of most of Belarusian football clubs contribute to low attendance of national championship. Moreover, Belarusian stadiums have a very poor infrastructure: no food is sold, beer drinking and smoking is completely prohibited.

Supporters often have to endure long humiliating procedure of security checks performed by ordinary and riot police. As a result average attendance of the highest league of Belarusian football championship is 2,000 people per match. A big part of these supporters belongs to ultras and football hooligans’ subculture.

Being Ultras in Belarus

After the Soviet Union collapsed in Belarus, similarly to others countries of ex-USSR, ultras and football hooligans subculture became widespread and has evolved over the 1990s and 2000s. Nowadays in Belarus there are two widest warring groups of fans. The first group is Dynamo Minsk Ultras famous by their right-wing political views.

The second group is FC Partisan Minsk (ex FC MTZ-RIPO) fans. After Vladimir Romanov stopped sponsorship of FC Partisan fans revived the club. Last season FC Partisan played in the Minsk championship. Most of FC Partisan supporters are leftists and describe themselves as anti-fascists.

ultras cannot hang banners in English for the reason that police cannot understand the textRead more

The conflict between Belarusian police and ultras is permanent. Most Belarusian cities apply absurd stadium regulations during the games. For instance, ultras cannot hang banners in English for the reason that police cannot understand the text. Police hinders fans from travelling in order to see matches. Usually police stops fans on railway stations and detains them until the match begins. In consequence ultras arrive for the match with a long delay.

In recent years on several occasions riot police attacked ultras on the stadium without any reason. For example, in the summer of 2011 in Babruisk during the match between Belshina Babruisk and Dynamo Minsk riot police attacked guest ultras using tear gas during celebration of the goal scored by Dynamo. As a result several fans, a five year old child and a Dynamo Minsk player who run up to the sector with a guest fans to celebrate the goal were injured.

Provoked by the riot police Dynamo Minsk ultras chanted the slogan “We hate the regime” for several minutes, referring to the political regime in the country.

The conflicts between ultras and Belarus Football Federation are often initiated by Federation officials. The latest conflict took place in the autumn of 2012 after the ticket prices for the World Cup qualifying match against Spain increased 10 times in comparison to another official matches. Prices for the tickets for the match against Spain amounted from $25 to $42 while the price for the tickets to the previous official match against Bosnia and Herzegovina on September 2, 2011 according to the official exchange rate were around $5.

To make the Federation reduce the prices members of the ultras group of Belarus representation B-12 announced the boycott of the match, resulting with extremely poor ticket sales for the game. In order to fill the stadium, employees of state-owned enterprises and schools were forced by their supervisors to buy the tickets.

Belarusian Ultras and the Regime

Because of total control on the stadiums, Belarusian Ultras rarely express their political views towards Belarusian political regime. But they are doing it outside stadiums or during the matches that take place outside the country.

In the summer of 2011 during the silent protest actions in Belarusian cities in independent mass-media appeared the information that just before one of the action was arrested one of the leaders of FC Dynamo Minsk fans Anatoly Khamenka one of active participant of such actions.

The same days to support the protesters FC BATE ultras on the away match in Panevėžys (Lithuania) chanted the slogan ШОС [shos] which can be decoded as “May he die!” which refers to Lukashenka.

On the away matches of Belarus representation most of the fans use the White-Red-White flag which was the official flag of Belarus before 1995. Forbidden in today’s Belarus it is using by opposition.

In Lukashenka's Belarus state is using security agencies seeks to control every political and social activity. The subculture of ultras and football hooligans can be seen by youngsters as an attractive alternative for self-realisation.

Numerous and well-organised groups of ultras is seeing by security services as a threat to the authoritarian regime. That is why using riot police during matches and making unbearable conditions for active support they try to reduce the protest potential of the ultras.